Aparna Ramachandra, founder Director of Rectify Credit, India's first credit advocacy firm, and author of Why is my Credit Report Screwed Up?, does the math for you, helping you understand how the lockdown is helping you save money and what can you do with these savings.
As we enter the final days of the national lockdown, the world we left behind seems a distant memory. Gone are the days of movie outings, Friday night parties and fancy dinners. The coronavirus pandemic has changed the world in ways we could never imagine; it has also changed us. For several of us, this has been the longest we’ve not socialised, eaten outside, stepped out for a drink or visited the cinema. It is easy to feel like you’ve been imprisoned and get bogged down by the constant flow of negativity that seemingly never ends but think about it, really, and you will be able to see the bright side behind the lockdown. All you’ll need to do is log into your savings account and you’ll likely discover that you’ve saved a neat sum.
Let’s work on the assumption that the pandemic hasn’t hit your paycheque for the last two months and you’ve been getting paid on time. Let’s also assume that you are a young upwardly mobile nuclear family living in the metros. Now let’s look at all the expenses on which you’ve saved.
An average movie outing for a family of four can easily blow a hole of ₹8,000 to ₹9,000 in your pocket:
Movie tickets: ₹2800 (at the rate of ₹700 per ticket)
Popcorn and snacks: ₹1,000
Assuming both the wife and husband are working professionals, you are likely spending anywhere in the range of ₹30,000 per month on local transport between the two of you. Think, Ola/Uber or the two cars you own. To be clear, everyone’s transport overheads aren’t this high but it’s a safe assumption to make that those who can afford to skip public transport in metros, tend to do so even at a high cost.
Then there are the inevitable spends that come with being part of a workplace – think office parties, drinks on the weekends, ordering in because you’re too bored to eat home food. Let’s put them down at ₹15,000 per month, a conservative estimate, wouldn’t you agree?
And, ultimately, there are the small indulgences – a dress here, a pair of jeans there, perhaps something for the kids – that easily stacks up another (very conservative figure of) ₹10,000 per month.
Thanks to the pandemic, your summer vacation plans have gone out of the window too. Which means you have an additional lakh or two that are lying untouched.
So let’s add up all of this, shall we?
Family movie + dinner: ₹8,000
Eating out/ordering in: ₹15,000
With the lockdown expected to go on for another 15-odd days, that’s a cool saving of nearly ₹1,26,000
Add the vacation fund of, say, ₹1,00,000 and what you get is a total saving of up to ₹2,26,000 by the end of May.
Again, this amount has been arrived by totalling back-of-the envelope expenses of young upwardly mobile families living in big cities. And, chances are, you’re saving more because if your summer vacation was supposed to be in Europe or anywhere outside of India, that fund was likely going to be closer to ₹3,00,000 or more.
Even if you don’t have expenses as high as these, it’s safe to say you have saved a neat sum anyway. Which brings us to the question you’ve probably been asking:
What do you do with liquid cash of ₹2,26,000?
1. Pre-pay your loans
If you happen to be at the fag-end of any loans – say a home loan or a car loan or a personal loan – consider closing them off so you aren’t saddled with EMIs for the coming months. This will help you have a clean slate and make things easier in the future should you find that your employer has asked you to take a pay cut.
2. Repay your credit card debts
Credit card dues are the ones that cause the most damage to your finances. The high rates of interest (sometimes as high as 48 per cent) are often the reason why you’re always struggling to keep your head above the water. If you’ve managed to get this kind of liquidity, use it to pay off those debts and finally break the vicious cycle.
3. Replenish your savings
If you’d redeemed your mutual funds or encashed them in a state of panic, you wouldn’t be alone. In these last 45 days you would’ve saved considerable amount; consider putting it back into mutual funds; these will become your additional units.
4. Start one or two SIPs
This is the easiest advice you could do. Instead of keeping the cash you’ve saved in the account to which you have easy access, transfer it to one of your other savings accounts that you don’t usually touch. Start one or two SIPs – one of ₹5,000 and another one of ₹7500. The money you’ve saved should take you through for the next few months easily and, at the end, you would’ve had a decent capital put away.
5. Complete your tax savings
The deadline to show proof of your investments for tax saving purposes is usually March 31. It isn’t unusual for people to be struggling in March to put away that money. Thankfully, the government has extended that deadline so you can make the most of this time and complete your tax savings so you start your new financial year on a fresh note.
A pandemic needn’t always be a scary thing. Sure, there have been a lot of job losses and businesses are having a lot of cash flow issues. Of course there are a lot of negatives to it but if you are able to shut off all the noise and simply look at your bank statement, chances are you’d realise that you can salvage your personal situation.
This is a good time to do your homework, learn about your finances instead of going to your relationship manager or investment advisor. No one’s expecting you to invest in futures and options. Start with simple financial products like SIPs and that will help your financial health. Always remember, you cannot outsource finance and fitness. These, you need to do yourself.
Aparna Ramachandra is the founder director of Rectify Credit, India's first credit advocacy firm and author of Why is my Credit Report screwed up?.